SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended November 30, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from _________ Commission File Number: 0-19945 NoFire Technologies, Inc. ------------------------- (Name of small business issuer in its charter) Delaware 22-3218682 --------- ----------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 21 Industrial Avenue, Upper Saddle River, New Jersey 07458 ----------------------------------------------------------- (Address of principal executive offices) (Zip Code) Issuer's telephone number (201) 818-1616 ------------- Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by the Court. YES X NO --- --- State the number of shares of each of the issuer's classes of common equity outstanding at the latest practicable date: 14,035,974 shares of Common Stock as of December 31, 1999. Transitional Small Business Disclosure Format (check one): YES NO X --- --- Page 1 NOFIRE TECHNOLOGIES, INC. FORM 10-QSB INDEX PART I - FINANCIAL INFORMATION PAGE Item 1. Unaudited Financial Statements: Balance Sheets as of November 30, 1999 and August 31, 1999 3 Statements of Operations for the Three Months ended November 30, 1999 and 1998 5 Statements of Cash Flows for the Three Months ended November 30, 1999 and 1998 6 Notes to Unaudited Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Part II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 13 Signatures 13 Page 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NOFIRE TECHNOLOGIES, INC. (A Development Stage Company) BALANCE SHEETS November 30, August 31, 1999 1999 ----------- ---------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash $ 112,674 $ 338,089 Inventory 106,852 91,003 Prepaid expenses and other current assets 12,579 43,397 --------- ---------- Total Current Assets 232,105 472,489 --------- ---------- EQUIPMENT, less accumulated depreciation 12,917 7,333 --------- ---------- OTHER ASSETS: Patents, less accumulated amortization of $1,276,995 at November 30, 1999 and $1,201,596 at August 31, 1999 230,985 306,384 Excess of reorganization value over net assets, less accumulated amortization of $179,367 at November 30, 1999 and $168,816 at August 31, 1999 31,654 42,205 Security deposits 19,836 19,836 ---------- --------- 282,475 368,425 ---------- --------- $ 527,497 $ 848,247 ========== ========== See accompanying notes to financial statements Page 3 NOFIRE TECHNOLOGIES, INC. (A Development Stage Company) BALANCE SHEETS November 30, August 31, 1999 1999 ----------- ---------- (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) CURRENT LIABILITIES: Current portion of settled liabilities $1,307,515 $1,395,037 Accounts payable and accrued expenses 679,424 647,535 Loans, and advances payable to stockholders 220,750 26,250 Deferred salaries 650,226 650,226 8% convertible debentures 436,002 436,002 ---------- --------- 3,293,917 3,155,050 ---------- --------- SETTLED LIABILITIES, LESS CURRENT MATURITIES 18,136 23,912 ---------- --------- STOCKHOLDERS' EQUITY (DEFICIENCY): Common stock $.20 par value: Authorized - 50,000,000 shares Issued and outstanding - 14,035,974 shares at November 30, 1999 and at August 31, 1999 2,807,195 2,807,195 Capital in excess of par value 1,158,217 1,158,217 Deficit accumulated in the development stage (6,749,968) (6,296,127) ---------- ---------- Total Stockholders' Equity (Deficiency) (2,784,556) (2,330,715) ---------- ---------- $ 527,497 $ 848,247 ========== ========== See accompanying notes to financial statements Page 4 NOFIRE TECHNOLOGIES, INC. (A Development Stage Company) STATEMENTS OF OPERATIONS July 13, 1987 (Date of For the Three Months Inception) Ended November 30, through 1999 1998 November 30, 1999 ---------- --------- ---------- (UNAUDITED) (UNAUDITED) NET SALES $ 45,413 $ 7,160 $ 717,002 ---------- ---------- ---------- COSTS AND EXPENSES: Cost of sales 21,553 3,222 398,847 Write-down of excess inventory - - 35,000 General and administrative 447,644 364,365 9,773,420 ---------- ---------- ---------- 469,197 367,587 10,207,267 ---------- ---------- ---------- LOSS FROM OPERATIONS (423,784) (360,427) (9,490,265) ---------- ---------- ---------- OTHER EXPENSES: Interest expense 31,712 38,668 1,005,335 Interest income (1,655) (692) (11,367) Reorganization items - - 365,426 Litigation settlement - - 198,996 ---------- ---------- ---------- 30,057 37,976 1,558,390 ---------- ---------- ---------- LOSS BEFORE DISCONTINUED OPERATIONS AND EXTRAORDINARY ITEM (453,841) (398,403) (11,048,655) DISCONTINUED OPERATIONS - - (1,435,392) ---------- ---------- ---------- LOSS BEFORE EXTRAORDINARY ITEM (453,841) (398,403) (12,484,047) EXTRAORDINARY ITEM - Gain on debt discharge - - 507,952 ---------- ---------- ---------- NET LOSS $ (453,841) $ (398,403) $(11,976,095) ========== ========== ========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 14,035,974 12,142,107 ========== ========== EARNINGS (LOSS) PER SHARE, BASIC AND DILUTED $ (0.03) $ (0.03) ========== ========== See accompanying notes to financial statements Page 5 NOFIRE TECHNOLOGIES, INC. (A Development Stage Company) STATEMENTS OF CASH FLOWS July 13, 1987 (Date of For the Three Months Inception) Ended November 30, through 1999 1998 November 30, 1999 --------- --------- ---------- (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (453,841) $ (398,403) $(11,976,095) Adjustments to reconcile net loss to net cash flows from operating activities: Depreciation and amortization 86,366 85,692 1,557,860 Extraordinary gain on debt discharge - - (507,952) Amortization of interest expense for settled liabilities - 17,117 634,522 Revaluation of assets and liabilities to fair value - - 482,934 Litigation settlement - - 198,996 Common stock issued in exchange for services - - 131,700 Write-down of excess inventory - - 35,000 Changes in operating assets and liabilities (net of effects from reverse purchase acquisition) Inventory (15,849) (9,134) (141,852) Prepaid expenses 30,818 (5,706) (12,579) Accounts payable and accrued expenses 31,889 (28,245) 2,926,411 Security deposits - - (19,836) Deferred salaries - 37,695 650,226 Obligation from discontinued operations - - 51,118 ---------- --------- ---------- Net cash flows from operating activities (320,617) (300,984) (5,989,547) ---------- --------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of equipment (6,000) (1,773) (38,784) Increase in patent costs - - (139,270) Acquisition accounted for as a reverse purchase - - (517,893) ----------- --------- ---------- Net cash flows from investing activities (6,000) (1,773) (695,947) ----------- --------- ---------- See accompanying notes to financial statements Page 6 NOFIRE TECHNOLOGIES, INC. (A Development Stage Company) STATEMENTS OF CASH FLOWS July 13,1987 (Date of For the Three Months Inception) Ended November 30, through 1999 1998 November 30, 1999 --------- --------- ---------- (UNAUDITED) (UNAUDITED) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from notes payable - - 721,000 Principal Payments on notes payable - - (75,000) Principal Payment of settled liabilities (93,298) (46,171) (2,737,197) Proceeds from issuance of common stock, net of related expenses - 260,000 7,447,500 Proceeds from issuance of long-term debt - - 785,113 Net loans and advances from stockholders 194,500 (7,102) 220,750 Proceeds from issuance of 8% convertible debentures - - 436,002 ---------- ---------- ---------- Net cash flows from financing activities 101,202 206,727 6,798,168 ---------- ---------- ---------- NET CHANGE IN CASH (225,415) (96,030) 112,674 CASH AT BEGINNING OF PERIOD 338,089 170,400 - ---------- ---------- ---------- CASH AT END OF PERIOD $ 112,674 $ 74,370 $ 112,674 ========== ========== ========== SUPPLEMENTAL CASH FLOW INFORMATION Interest paid $ 1,370 $ 9,524 $ 63,744 ========== ========== ========== Income taxes paid $ - $ - $ - ========== ========== ========== Common stock issued in exchange for settlement of debt $ - $ 18,481 $ 271,810 ========== ========== ========== Common stock issued in exchange for subscriptions receivable $ - $ - $ 95,000 ========== ========== ========== Common stock issued in exchange for services $ - $ - $ 131,700 ========== ========== ========== See accompanying notes to financial statements Page 7 NOFIRE TECHNOLOGIES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS (Unaudited) November 30, 1999 NOTE 1 - Basis of Presentation: The balance sheet at the end of the preceding fiscal year has been derived from the audited balance sheet contained in the Company's Form 10-KSB for the year ended August 31, 1999 (the "10-KSB")and is presented for comparative purposes. All other financial statements are unaudited. In the opinion of management, all adjustments which include only normal recurring adjustments necessary to present fairly the financial position, results of operations and cash flows for all periods presented have been made. The results of operations for interim periods are not necessarily indicative of the operating results for the full year. Footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted in accordance with the published rules and regulations of the Securities and Exchange Commission. These financial statements should be read in conjunction with the financial statements and notes thereto included in the 10-KSB for the most recent fiscal year. Loss per Share - Loss per share is based on the weighted average number of shares outstanding during the periods. The effect of warrants outstanding and shares issuable in connection with convertible debentures is not included since it would be anti-dilutive. NOTE 2 - Reorganization: Prior to August 11, 1995, the effective date of its confirmed Plan of Reorganization (the "Plan") pursuant to Chapter 11 proceedings under the United States Bankruptcy Code (the "Code"), the Company operated under the name of PNF Industries, Inc. ("PNF") and subsidiaries. Effective August 6, 1991, PNF acquired the outstanding common stock of both No Fire Engineering, Inc. and No Fire Ceramic Products, Inc. in a transaction accounted for as a reverse acquisition. Both of those subsidiaries were dissolved during the fiscal year ended August 31, 1997. On August 31, 1994, involuntary petitions for relief under Chapter 11 of the Code were filed against the Company and certain of its subsidiaries. Under the provisions of the Code, claims against the Company in existence prior to the Petition Date were stayed. On April 7, 1995 the Bankruptcy Court confirmed the Plan. The Plan provided for a fixed amount that would pay in full over a four year period virtually all pre-petition claims known on the confirmation date. With additional claims approved after that date considered, the fixed amount covered 94% of final approved claims. On August 11, 1995, the effective date of the Plan, PNF emerged from Chapter 11 as a reorganized company under the name NoFire Technologies, Inc. As of that date, the Company adopted "fresh start reporting" and implemented the effects of such adoption in its balance sheet as of August 31, 1995. Page 8 NOFIRE TECHNOLOGIES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS (Unaudited) November 30, 1999 NOTE 3 - Fresh Start Reporting: At August 31, 1995, under the principles of fresh start reporting, the Company's total assets were recorded at their estimated reorganization value of $1,750,000, with such value allocated to identifiable assets on the basis of their estimated fair value. The reorganization value included the patents for intumescent fire retardant products which patents were valued at $1,500,000. NOTE 4 - Management's Actions to Overcome Operating and Liquidity Problems: The Company's financial statements have been presented on the going concern basis which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company's viability as a going concern is dependent upon its ability to achieve profitable operations through increased sales and raising additional financing. The Company has a liability for settled claims payable to creditors and accrued expenses incurred in connection with its reorganization under the Plan. Without the achievement of profitable operations or additional financing, funds for repayment would not be available. Management believes that actions it has undertaken to revise the Company's operating and marketing structure will provide it with the opportunity to generate revenues needed to realize profitable operations and to attract the necessary financing and/or capital for the payment of outstanding obligations. Agreements for future infusion of capital are discussed in the Management's Discussion of Liquidity and Capital Resources section. Page 9 NOFIRE TECHNOLOGIES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS (Unaudited) November 30, 1999 NOTE 5 - Warrants: The Company has issued warrants for the purchase of common stock as follows: Shares Exercise Price ---------- -------------- 2,400,000 $ .50 800,000 .5625 2,800,280 .75 4,544,718 1.00 52,000 1.25 978,500 1.50 3,459,275 2.00 35,000 2.50 1,222,500 3.00 50,000 3.25 12,000 5.00 ---------- 16,354,273 The warrants vest to the holders in various intervals ranging from issue date to seven years from issuance. Page 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company continued its product development and application testing, and now has several certifications for specific applications. Since August 1995, the Company has applied for eight patents, two of which have been issued and two others have been allowed so that patents will be issued shortly. The other four are pending. Additionally, one patent has been purchased. The Company is substantially increasing its marketing efforts by employing an experienced marketing executive and retaining the services of specialized marketing firms. Marketing efforts to date, have brought the Company closer to achieving significant sales for applications in such diverse industries as high-speed ferries, naval and commercial ships, wood product building components, concrete and structural steel column protection, automotive, aircraft and consumer products. In the high-speed ferry project, the Company's fire protection system has passed stringent tests and was approved for use by Transport of Canada. In the nuclear power generating industry, an unrelated contractor has been awarded a contract to upgrade the fire protection of electrical cables at a large U.S. nuclear power plant specifying the Company's product. The first purchase orders, valued at $190,000, to provide materials for that contract were shipped in the last fiscal year. The Company expects to qualify its products and make aggressive marketing efforts to obtain orders from the military and other governmental agencies. Obstacles encountered in obtaining orders are the continuing tests and approvals required, competition against well established and better capitalized companies, cost, and the slow process of specifying new products in highly regulated industrial applications. In general, the Company's products perform their intended uses well and are beginning to be sold commercially in a form that is safe and easy to use. The Company's most pressing need continues to be cash infusion as discussed below in the section on Liquidity and Capital Resources. The Company intends to continue its research and testing efforts to meet new market opportunities. The number of manufacturing and quality control employees will increase with increased production. The salaried administrative and marketing staff will be evaluated and may be increased to support sales and marketing initiatives. Additional sales and marketing support is expected to be provided by commissioned independent agents. COMPARISON THREE MONTHS ENDED NOVEMBER 30, 1999 AND NOVEMBER 30, 1998 Sales of $45,413 for the three months ended November 30, 1999 represented an increase of 534% from the $7,160 for the comparable three-month period of the prior year. Cost of goods sold during the same periods increased 569% from $3,222 to $21,553 resulting in a gross profit of $23,860 compared to $3,938 in the prior year. Selling, general and administrative expenses for the three months ended November 30, 1999 were $447,644, representing an increase of $83,279 or 23% from the $364,365 of the similar period of the prior year. The most significant changes were increases in officers' salaries of $70,000 and marketing efforts of $42,000. These were partially offset by a reduction of $40,000 in professional fees. The $6,956 reduction in interest expense is mainly the result of the elimination in the present year of the amortization of interest expense for settled Chapter 11 liabilities. Page 11 LIQUIDITY AND CAPITAL RESOURCES At November 30, 1999 the Company had cash balances of $112,674. In order to fund continuing operations during the three months ended on that date, $200,000 was obtained through a loan bearing interest at an 8% annual rate from the group of accredited investors noted below. These funds are to be applied to an agreement to invest a total of $1,100,000 in exchange for 1,641,791 units consisting of one share of common stock and five-year warrants to purchase two and one-half shares at an exercise price of $.67 per share. Under this arrangement, funds will be invested from time to time as required by the Company. In another agreement, at their option or when certain sales criteria are met, that same investment group will invest an additional $650,000 in exchange for 866,667 units consisting of one share of common stock and five-year warrants for two and one-half shares at an exercise price of $0.75 per share. The investment group has advised the Company that it has and will continue to file all reports with the SEC that it deems appropriate including Schedules 13D and Forms 3 and 4. Because of its limited cash resources, the Company has deferred payment of $1,281,964 of the installments of the Chapter 11 liability to unsecured creditors that were due in September 1996, 1997, 1998 and 1999. Of that deferred amount, $790,686 is due to officers and directors of the company. In order to meet its liabilities and working capital needs until significant sales levels are achieved, the Company will continue to explore alternative sources of funding including exercise of warrants, bank and other borrowings, issuance of convertible debentures, issuance of common stock to settle debt, and the sale of equity securities in a public or private offering such as sales under the agreements noted above. YEAR 2000 ISSUE The Company has conducted a comprehensive review of its computer systems to identify the systems that could be affected by the "Year 2000" issue. The Year 2000 problem is the result of computer programs being written using two digits rather than four to define the year. Any programs that have time- sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in major system failure or miscalculations. The Company presently believes that the Year 2000 problem will not pose significant operational problems for the Company's computer systems. However, there can be no assurance that the systems of other companies on which the Company's systems rely also will be timely converted or that any such failure to convert by another company would not have an adverse effect on the Company's systems. Page 12 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K No reports on Form 8-K were filed during the quarter ended November 30,1999. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: January 6, 2000 NoFire Technologies, Inc. By: /s/ Robert R. Isen Robert R. Isen Chief Executive Officer By: /s/ Sam Oolie Sam Oolie Chairman of the Board, Chief Operating Officer and Treasurer Page 13